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CS-99-AF
COVER SHEET FOR ALL FILINGS EXCEPT EXPRESS LANE
COVER SHEET
SEC Number
Company TIN
727
000-229-931
CENTRAL AZUCARERA DE TARLAC
( Company’s Full Name )
San Miguel , Tarlac , Tarlac
Makati Office – JCS Bldg., 119 Dela Rosa St.
Legaspi Village, Makati City
( Company’s Address: No., Street, City, Town/Province )
818 – 3911
( Company’s Telephone Number )
June 30, 2006
Last Tuesday of January
( Fiscal Year Ending )
( Month/Day )
Annual Meeting
17 – Q Quarterly Report – 3rd Quarter
(JANUARY to MARCH, 2006) of the FY 2005 - 06 )
( FORM TYPE )
________________________________________________________
( Amendment Designation, if Applicable )
( Secondary License Type, if any )
WELLERITA D. AGUAS
120 – 087 – 038
09 – 24 – 45
( Company Representative )
( TIN )
( Birth Date )
Do not fill below this line
Cashier
Central Receiving Unit
LCU
File Number
Document ID
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17 – Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES
REGULATION CODE AND SRC RULE 17(2) (b) THEREUNDER
2
1.
For the quarterly period ended
March 31, 2006 (3rd Qtr. of FY July 1, 2005 – June 30, 2006)
…………………………………………………..
2.
Commission identification number
727
…………………
3.
BIR Tax Identification No 000229931
………………
CENTRAL AZUCARERA DE TARLAC
……………………………………………………………………………………………….
4. Exact name of issuer as specified in its charter
Manila, Philippines
………………………………………………………………………………………………..
5. Province, country or other jurisdiction of incorporation or organization
6.
Industry Classification Code :
( SEC Use Only )
San Miguel, Tarlac, Tarlac
………………………………………………………………………………………………..
7. Address of issuer’s principal office
Postal Code
818 – 3911
………………………………………………………………………………………………..
8. Issuer’s telephone number, including area code
n.a.
………………………………………………………………………………………………..
9. Former name, former address and former fiscal year, if changed since last report
10. Securities registered pursuant to Section 8 and 12 of the Code, or Sections 4 and 8 of the RSA
Title of each Class
Number of shares of common
Stock outstanding and amount
of debt outstanding
Common
28, 253, 876
………………………………………………………………………………………………..
………………………………………………………………………………………………..
………………………………………………………………………………………………..
11. Are any or all of the securities listed on a Stock Exchange?
Yes [ X ]
No [
]
If yes, state the name of such Stock Exchange and the class/es of securities listed therein:
SEC Form 17-Q
February 2001
PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements.
In compliance with the requirements of SRC Rule 68, the following financial statements of
Central Azucarera de Tarlac are submitted together with this Form 17 – Q:
A. Unaudited Balance Sheet as of March 31, 2006 and Audited June 30, 2005 Balance Sheet;
B. Unaudited Statements of Loss and Retained Earnings (Deficit) for the Nine (9) Months Ended
March 31, 2006 and 2005 & Three (3) Months Ended March 25, 2006 and 2005
C. Unaudited Statements of Changes in Stockholder’s Equity for the Nine (9) months ended March
31, 2006 and Audited June 30, 2005; and
D. Unaudited Statements of Cash Flows for the Nine (9) Months Ended March 31, 2006 and 2005
and Three (3) Months Ended March 31, 2006 and 2005.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations.
Financial Highlights
Profit and Loss Data (in thousand pesos)
ended March 31
2006
2005
Profit and Loss Data (In thousand pesos)
Sales Revenues…………………..
340,919
Cost of goods Sold……………….
240,366
Gross Profit………………………..
100,553
Operating Expenses……………..
70,358
Operating Income(Loss).…………
30,195
Net Income(Loss).………………..
(28,789)
Balance Sheet Data (in Thousand Pesos)
Total Assets………………………
1,590,993
Total Liabilities……………………
1,567,285
Total Stockholders' Equity………
23,708
Financial Ratios
Gross Margin……………………..
Operating Margin…………………
Net Profit Margin…………………
Current Ratio……………………..
Debt-Equity Ratio………………..
Return on Assets………………..
Return on Equity…………………
29.49%
8.86%
-8.44%
0.84
66.11
(0.018)
(1.214)
1
103,601
311,232
(207,631)
102,787
(310,418)
(392,922)
1,813,244
1,603,332
209,911
-200.41%
-299.63%
-379.26%
0.92
7.64
(0.217)
(1.872)
ended June 30
2005
133,443
331,541
(198,098)
(137,833)
(437,831)
(552,989)
1,666,407
1,613,910
52,497
-148.45%
-328.10%
-414.40%
0.78
30.74
(0.332)
(10.534)
Review of Operations
While the mill started its operations for this season some two months late on
December 12, 2005, canes hauled by CAT reached 405,035 tons. This represents an
increment of 162.68% or 250,841 tons from last year’s 154,194 tons. The higher tonnage and
improved quality of cane boosted raw sugar output. Raw sugar produced for the period was
registered at 737,548 50-kg bags, up 181.58% or 475,620 bags from 261,928 bags of the same
period last year. Recovery was at a higher 1.439 vs. 1.343 piculs per ton cane due to the
better quality of cane for milling. Mill’s share was at a higher 231,170 bags, up 177.17% or
147,766 bags from 83,404 bags the previous year.
The increment in cane tonnage boosted molasses production by 114.55% or 1,290,494
gallons, from 1,126,604 to 2,417,098 gallons. However, recovery was at a lower 5.97 vs.
7.31 gallons of molasses per ton cane due to the improved efficiency of the raw sugar mill.
Mill’s share rose 105.15% or 388,331 gallons to 757,625 gallons.
The increase in the available raws for melting propped up the refinery output. Refined
sugar produced increased by 110.45% or 364,983 50-kg bags for 695,423 50-kg bags from
330,440 50-kg bags. Recovery was posted at a higher 1.1918 vs. 1.1714 due to the improved
quality of raws melted.
Similarly, the increase in the available molasses for distilling resulted in a higher
alcohol production. Gallons of molasses processed rose by 191.04% or 1,152,700 gallons to
1,755,126 gallons. The distillery produced a total of 2,901,000 g.l. of alcohol, 180.15% or
1,865,500 g.l. more than the previous 1,035,500 g.l. The inferior quality of molasses for
distilling contributed to the lower alcohol recovery rate of 1.65 vs. 1.72 g.l. per gallon of
molasses processed. Carbon dioxide production also posted as increment of 162.35% or
526,000 kilos, from 324,000 to 850,000 kilos.
Financial Review
For the period in review, the total revenue generated was posted at P340.919M, up
229.07% or P237.318M from the previous P103.601M. With the resumption of the milling
operations, traditional sources of revenues posted increments as against that of the previous
year that was hampered by the yearlong labor problem.
Increased sales volume and higher raw sugar composite boosted raw sugar sales by
388.09% or P148.578M to the current P186.862M. Sales volume rose 289.69% or 128,514
50-kg bag to 172,876 50-kg bags at a higher composite price of P1,080.91 vs. P863.01 per 50kg bag due mainly on speculative trading brought about by the perceived tightness in supply
and improved world market prices.
2
The higher refinery output as a result of the normalization of the operations and the
tolling rate adjustment from P179.00 to P205.76 per 50-kg bag of refined sugar effective the
current refining season jacked up the tolling income. Refined sugar produced grew 110.45%
or 364,983 50-kg bags to 695,423 50-kg bags due to the increased available raws for melting.
As a result, tolling income went up to P143.090M, higher by 141.92% or P83.941M from last
year’s 59.149M.
A slightly higher increase in sales volume and average selling price pushed the sale of
alcohol to P6.484M, up 10.58% or P0.620M from P5.864M. Sales volume inched up by
12,000 gauge liters to a total of 300,000 gauge liters on a slightly higher selling price of
P21.61 as against last year’s P20.36 per gauge liter.
Sales of Carbon Dioxide was posted as P4.482M, up 1,373.10% or P4.178M from last
year’s P0.304M. The decline in the average selling price per kilo of CO2 failed to dampen
the increment in sales volume. Sales volume jumped 1,564.28% or 615,700 kilos to a total of
655,060 kilos. The average selling price though slumped a bit from P7.73 to P6.84 per kilo
on a weakened market demand.
The table below presents the comparative breakdown of the Company’s sales for the Nine (9)
months ended March 25, 2005 and 2004, and a summary contribution to total sales:
As at March 31
2006
Raw Sugar
Tolling Fees/Refined Sugar
Alcohol
CO2
TOTAL
Percentage
Contribution
186,863,000
143,090,000
6,484,000
4,482,000
340,919,000
As at March 31
2005
55
42
2
1
100
38,284,525
59,148,760
5,864,0000
304,146
103,601,431
Percentage
Contribution
37
57
6
100
Cost and Expenses
(in thousand pesos)
For the Nine (9) months ended March 31
2006
2005
Cost of Goods Sold ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Operating Expenses~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Depreciation ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
240,336
70,358
49,884
311,232
102,787
58,426
Central Azucarera de Tarlac registered a net loss equivalent to P 28.789M for the Nine (9)
months ended March 31, 2006, lower by P363.133M from a net loss of P392.922M in 2005.
3
Earnings (Loss) Per Share
(in thousand pesos)
As at 31 March 2006
Year – to – date
Weighted Ave. no. of Shares ~ ~ ~ ~
Net (Loss) ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
(Loss) Per Share ~ ~ ~ ~ ~ ~ ~ ~
28,263
(28,789)
(.09)
As at 31 March 2005
Year – to – date
28,263
(392,922)
(1.38)
Changes in Assets and Liabilities
Total Current Assets as of March 31, 2006 was P1.197B as compared to P1.068
B as of June 30, 2005 audited balance resulting to an increase of P128.9M brought about by
the following:
1. Cash increased by P13.9M (394%) from P3.5M last June 30, 2005 to P17.5M in
March 31, 2006. Please refer to attached Cash Flow Statements.
2. Receivables increased by P44.3M (4%) from P1.012B last June 30 2005 to
P1.056B in March 31, 2006. Increases are mainly due to advances granted to planters for crop
establishment-planters account.
Aging of Accounts Receivable
(in thousand pesos)
Current ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Over 30 days past due ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Over 60 days past due ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Over 90 days past due ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Sub Total ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Less: Allowance for Doubtful Accounts~ ~ ~ ~ ~
Net: Accounts receivable-trade ~ ~ ~ ~ ~ ~ ~ ~
As of March 31
As of March 31
2006
101,388
273,647
231,142
453,421
1,059,598
2,276
1,056,322
2005
1,064,965
1,064,965
2,276
1,062,689
3. Inventories - Increased by P70.6M (134%) from P52.8M last June 30, 2004 to
P123.5M in March 31, 2006 mainly due to increase in inventories of raw sugar and alcohol
which are available for sale.
4
Inventory Schedule
(in thousand pesos)
As of March 31
2006
As of March 31
2005
44,142
44,008
975
130
28,999
5,279
123,533
37,407
13,368
690
119
38,063
2,094
91,741
Finished goods:
Raw sugar ~ ~
Alcohol ~ ~ ~
Carbon Dioxide
Molasses ~ ~ ~ ~ ~ ~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
~
Yeast ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Materials & Supplies ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Materials in Transit ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
Total ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~ ~
4. Due from related parties decreased by P157.1M (56%) from P280.8M last June 30,
2005 to P123.6M as of March 31, 2006 mainly due to collections from affiliated companies.
5. Property, Plant & Equipment decreased by P50.7M (21%) from P240.5M as of
June 30, 2005 to P189.8M as of March 31, 2006 mainly due to depreciation charged to
operations.
6. Other Non-current assets increased by P3.5M (10%) from P35.8M as of June 30,
2005 to P39.3M in March 31, 2006 due to increase in Creditable Withholding Tax arising
from sales.
7. Notes Payable current portion decreased by P38.7M (4.8%) from P791M in June
30, 2005 to P752M as of March 31, 2006, while Notes Payable long term decreased by
P85.5M (48.61%) from P176M in June 30, 2005 to P90.5M as of March 31, 2006 due to
payments made during the period.
8. Accounts Payable and Accrued Expenses increased by P79M (14%) from P587M
in June 30, 2005 to P666M as of March 31, 2006 due to increase in suppliers account and
accrued expenses.
9. Due to Related Parties decreased by P1.4M (3%) from P59.7M last June 30, 2005
to P58.1M as of March 31, 2006 due to payment of related parties
10. Stockholders’ Equity decreased by P28.7M (55%) from P52.4M last June 30,
2005 to P23.7M in March 31, 2006 due to losses during the period.
11. Retained Earnings (deficit) likewise increased by P29M (12.5%) from P230M
in June 30, 2005 to P259M in March 31, 2006.
12. The Company’s Current Ratio in March 31, 2006 is 0.84 and 0.78 in June 30,
2005 while Debt to Equity registered 66.11 from 30.74 in June 30, 2005.
5
PART II – OTHER INFORMATION
There is no information not previously reported on SEC Form 17 – Q
SIGNATURES
Pursuant to the requirements of the Securities Regulation Commission, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
Registrant
CENTRAL AZUCARERA DE TARLAC
Signature and Title
NEREO C. MENDOZA
Vice President , Finance
May 12, 2006
Date
Principal Financial / Accounting Officer / Controller
Signature and Title
WELLERITA D. AGUAS
Asst. Vice President , Finance
May 12, 2006
Date ____________________
CENTRAL AZUCARERA DE TARLAC
UNAUDITED
INTERIM FINANCIAL STATEMENTS
( WITH COMPARATIVE STATEMENTS )
MARCH 31, 2006
( IN THOUSAND PESOS )
CENTRAL AZUCARERA DE TARLAC
BALANCE SHEET
MARCH 31, 2006 AND JUNE 30, 2005
(In Thousand Pesos)
UNAUDITED
MARCH 31
2006
AUDITED
JUNE 30
2005
ASSETS
CURRENT ASSETS
CASH
ACCOUNTS RECEIVABLE - NET
INVENTORIES
TOTAL CURRENT ASSETS
NON CURRENT ASSETS
DUE FROM AFFILIATES
INVESTMENTS IN SHARES OF STOCK
PROPERTY, PLANT & EQUIPMENT-NET
DEFERRED INCOME TAX
OTHER NON-CURRENT ASSETS
TOTAL NON-CURRENT ASSETS
TOTAL ASSETS
17,508
1,056,322
123,533
1,197,364
3,541
1,012,000
52,875
1,068,416
123,651
27,814
189,873
12,915
39,376
393,629
280,812
27,814
240,572
12,915
35,878
597,991
1,590,993
1,666,407
752,277
666,374
1,418,649
791,022
587,089
1,378,111
58,136
90,500
148,636
59,707
176,092
235,799
282,546
(258,831)
23,715
(7)
23,708
282,546
(230,042)
52,504
(7)
52,497
1,590,993
1,666,407
0.84
66.11
0.78
30.74
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
CURRENT PORTION OF NOTES PAYABLE
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
INCOME TAX PAYABLE
TOTAL CURRENT LIABILITIES
NON-CURRENT LIABILITIES
DUE TO AFFILIATES
NOTES PAYABLE
TOTAL NON-CURRENT LIABILITIES
STOCKHOLDERS’ EQUITY
CAPITAL STOCK
RETAINED EARNINGS (DEFICIT)
COST OF 720 SHARES OF STOCK IN TREASURY
TOTAL STOCKHOLDERS EQUITY
TOTAL LIABILITIES AND STOCKHOLDERS EQUITY
CURRENT RATIO
DEBT-EQUITY RATIO
CENTRAL AZUCARERA DE TARLAC
STATEMENTS OF LOSS
FOR THE QUARTER ENDED MARCH 31, 2006 AND 2005
(in Thousand Pesos)
9 MOS. ENDED
MARCH 31
MARCH 31
2006
2005
3 MOS. ENDED
MARCH 31 MARCH 31
2006
2005
REVENUES
Net sales of sugar & by products
Tolling fees
Total
197,829
143,090
340,919
44,452
59,149
103,601
175,288
136,709
311,997
6,099
6,099
COST OF GOODS SOLD & SERVICES
Cost of goods sold
Cost of tolling
Total
199,567
40,799
240,366
263,952
47,280
311,232
153,527
32,479
186,006
82,999
5,081
88,080
GROSS INCOME (LOSS)
100,553
(207,631)
125,991
(81,981)
OPERATING EXPENSES
70,358
102,787
49,424
37,300
INCOME (LOSS) FROM OPERATIONS
30,195
(310,418)
76,567
(119,281)
INTEREST & OTHER CHARGES – NET
(58,984)
(82,504)
927
INCOME (LOSS) BEFORE INCOME TAX
(28,789)
(392,922)
77,494
PROVISION FOR (INCOME TAX
Current
Deferred
NET INCOME (LOSS)
INCOME (LOSS) PER SHARE
-
-
-
(119,281)
-
(28,789)
(392,922)
77,494
(119,281)
(0.09)
(1.38)
(1.01)
(0.41)
CENTRAL AZUCARERA DE TARLAC
STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
MARCH 31, 2006 AND JUNE 30, 2005
(In Thousand Pesos)
UNAUDITED
MARCH 31
2006
CAPITAL STOCK – P10.00 PAR VALUE
AUTHORIZED-40,000,000 SHARES
ISSUED – 28,254,596 SHARES
RETAINED EARNINGS
APPROPRIATED FOR PLANT EXPANSION & MODERNIZATION
UNAPPROPRIATED
BALANCE AT BEGINNING OF YEAR
NET INCOME/(LOSS)
REVERSAL OF APPROPRIATION
BALANCE AT END OF YEAR
COST OF 720 SHARES OF STOCK IN TREASURY
AUDITED
JUNE 30
2005
282,546
282,546
0
0
230,042
(28,789)
(258,831)
170,296
(550,338
150,000
(230,042)
(7)
(7)
23,708
52,497
CENTRAL AZUCARERA DE TARLAC
STATEMENTS OF CASH FLOWS
FOR THE QUARTER ENDING MARCH 31, 2006 AND 2005
FROM JULY 1 TO
MARCH 31 MARCH 31
2006
2005
(9 months)
CASH FLOWS FROM OPERATING ACTIVITIES
INCOME BEFORE INCOME TAX
ADJUSTMENTS FOR:
INTEREST EXPENSE
INTEREST INCOME
DEPRECIATION AND AMORTIZATION
OPERATING INCOME (LOSS) BEFORE WORKING
CAPITAL CHANGES
DECREASE (INCREASE) IN:
ACCOUNTS RECEIVABLE
INVENTORIES
INCREASE (DECREASE) IN:
ACCTS. PAYABLE & ACCRUED EXPENSES
CASH GENERATED FROM /USED FOR OPERATIONS
INCOME TAX PAID
NET CASH PROVIDED BY (USED FOR ) ACTIVITIES
CASH FLOWS FROM INVESTING ACTIVITIES
NET ADDITIONS TO PROPERTY, PLANT & EQUIP.-NET
DECREASE (INCREASE) IN:
DUE FROM AFFILIATES
OTHER NON CURRENT ASSETS
INTEREST RECEIVED
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES
CASH FLOWS FROM FINANCING ACTIVITIES
INTEREST PAID
INCREASE IN DUE TO AFFILIATES
NET PROCEEDS FROM LONG TERM DEBT AND OTHER
BORROWINGS
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES
NET INCREASE (DECREASE) IN CASH
CASH AT BEGINNING OF YEAR
CASH AT END OF YEAR
FROM JAN. 1 TO
MARCH 31 MARCH 31
2006
2005
(3 months)
(28,789)
(392,922)
77,494
(142,693)
76,560
(15,312)
39,181
101,747
(18,354)
63,204
(3,174)
4,489
15,716
27,395
(3,941)
19,914
71,639
(246,325)
94,524
(99,325)
(29,955)
(70,658)
(80,138)
(44,016)
(51,425)
(34,197)
48,011
5,814
29,789
815
(3)
812
344,583
(25,898)
(25,898)
65,628
(56,726)
(56,726)
83,998
38,496
38,496
11,518
15,138
648
812
157,161
(3,498)
945
166,126
112,971
10,873
3,286
142,269
197,298
(2,290)
944
196,600
(32,452)
13,104
165
(18,370)
(27,064)
(1,571)
(99,382)
10,637
(14,413)
20,610
(34,731)
8,851
(124,336)
(152,971)
(1,942)
(90,688)
(145,524)
(139,327
1,058
(24,823)
13,967
25,685
548
(4,691)
3,540
13,715
16,960
44,091
17,508
39,400
17,508
39,400
PART 111 – OTHER MATTERS
The following are the stockholders owning more than 5.0% of the Issued and
Outstanding Capital Stock of Central Azucarera de Tarlac as of March 31, 2006:
Amount & Nature of
Ownership
Title of Class
Common
Common
Common
Name and Address
Luisita Trust Fund
JCS Bldg. 119 dela Rosa St.
Legaspi Vil., Mkti. City
Jose Cojuangco & Sons, Inc.
JCS Bldg. 119 dela Rosa St.
Legaspi Vil., Mkti. City
Tarlac Distilery Corp.
JCS Bldg. 119 dela Rosa St.
Legaspi Vil., Mkti. City
Record/Beneficial
Percentage
4,734,492 “b”
16.76
7,855,828 “b”
27.80
1,586,382 “b”
5.61
Luisita Trust Fund is a retirement benefit program of the regular and permanent
employees of the registran t and its affiliates which is wholly financed by the following
contributing companies : Central Azucarera de Tarlac, Hacienda Luisita, Inc., Luisita
Marketing Corporation, Jose Cojuangco & Sons, Inc., Tarlac Development Corporation
and Tarlac Distillery Corporation. Mrs. Josephine C. Reyes, Chairman of the Board of
Trustees, directs the voting and disposition of its securities with the registrant.
Jose Cojuangco & Sons, Inc., is the General Managers of the registrant. Mr. Pedro
Cojuangco, Chairman of t he Boad of Directors and President, directs the voting and
disposition of the securities with the registrant.
Tarlac Distillery Corporation , is the marketing arm of the registrant for its alcohol,
molasses and liquefied carbon dioxide. Mr. Jose Cojuangco, Jr., President, directs the
voting and disposition of the securities with the registrant.
CENTRAL AZUCARERA DE TARLAC
NOTES TO FINANCIAL STATEMENTS
1. Corporate Information and Status of Operations
Central Azucarera de Tarlac is incorporated in the Philippines. The Company is an integrated
sugar company engaged in the production of sugar (raw and refined) and sugar by-products such
as molasses, alcohol and carbon dioxide. The average number of employees of the Company was
972 in 2005 and 998 in 2004. The registered office address and place of business of the Company
is San Miguel, Tarlac City.
The accompanying financial statements have been prepared assuming that the Company will
continue as a going concern. The Company stopped its milling operations because of a labor
strike that was prompted by a Collective Bargaining deadlock. The workers went on strike in
November 2004 without complying yet with the required cooling period and strike vote of the
union members. The strike continued despite a return-to-work order issued by the Department of
Labor and Employment. The labor dispute brought considerable hardship both to the operational
and financial condition of the Company. This caused the Company to incur a net loss of
=
P550.3 million resulting to a deficit of =
P230.0 million as of June 30, 2005. The Company was not
able to recover its fixed costs representing mainly salaries and wages, depreciation, repairs and
maintenance, and machine shop, powerhouse and service department costs, because of the
resultant low volume of sales. Moreover, the Company has not been able to meet its maturing
bank obligations. The situation placed the Company in a tight liquidity position.
The negotiation with the labor union to settle the dispute was concluded on December
8, 2005. Terms of the memorandum of agreement between the Company and the union
members addressed the demands including back wages, bonuses, salary and wage
adjustments, among others. There are also ongoing negotiations with the creditor banks to
restructure loans into more serviceable terms, particularly, conversion of the P
=776.6 million
short term loans into long-term facilities with a tenor of up to five years. As of June 30, 2005,
=
P50.0 million of the loans were converted to long-term debt. Management believes that with
the resumption of the Company’s milling operations on December 10, 2005 and favorable
outcome on the restructuring of its long-term debt, it will be able to generate revenues to turnaround current year’s results of operations.
The ability of the Company to continue as a going concern depends largely on the resolution of the
labor dispute, successful negotiation with the creditor banks and the resumption of milling
operations. The financial statements do not include any adjustments relating to the recoverability
of recorded asset amounts or the amounts and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern.
The accompanying financial statements were authorized for issue by the Board of
Directors on January 19, 2006.
2. Summary of Significant Accounting Policies
Basis of Preparation
The accompanying financial statements have been prepared in conformity with accounting
principles generally accepted in the Philippines using the historical cost basis.
Changes in Accounting Policies
On July 1, 2004, the Company adopted Statement of Financial Accounting Standards (SFAS) 12/
International Accounting Standard (IAS) 12, Income Taxes, which requires deferred income taxes
to be determined using the balance sheet liability method.
The Company also adopted SFAS 17/IAS 17, Leases, which prescribes the accounting policies
and disclosures to apply to finance and operating leases.
Adoption of these standards has no material impact on the Company’s financial position and
results of operations.
Receivables
Receivables are recognized and carried at original invoice amount or face value less an allowance
for uncollectible amounts. An estimate for doubtful accounts is made when collection of the full
amount is no longer probable.
Inventories
Inventories are valued at the lower of cost and net realizable value. Cost is determined using the
weighted average method for raw sugar, alcohol, yeast and carbon dioxide, and using the moving
average method for spare parts and supplies. Net realizable value for raw sugar, alcohol, yeast and
carbon dioxide is the selling price in the ordinary course of business less costs of completion,
marketing and distribution. Net realizable value of spare parts and supplies is the current
replacement cost.
Investments in Shares of Stock
Investments in shares of stock are carried at cost less any significant and apparently permanent
decline in values.
Property, Plant and Equipment
Property, plant and equipment, except for land, are stated at cost less accumulated depreciation
and amortization and any impairment in value. Land is stated at cost less any impairment in value.
The initial cost of property, plant and equipment consists of its purchase price and any
directly attributable costs of bringing the asset to its working condition and location for its
intended use. Expenditures incurred after the property, plant and equipment have been put
into operation, such as repairs and maintenance and overhaul costs, are normally charged to
income in the period in which the costs are incurred. In situations where it can be clearly
demonstrated that the expenditures have resulted in an increase in the future economic
benefits expected to be obtained from the use of an item of property, plant and equipment
beyond its originally assessed standard of performance, the expenditures are capitalized as an
additional cost of property, plant and equipment.
When assets are sold or retired, their costs and the related accumulated depreciation and
amortization and any impairment in value are eliminated from the accounts and any gain or loss
resulting from their disposal is included in the statements of income.
Depreciation and amortization are computed on a straight-line basis over the estimated useful lives
of the assets as follows:
Machinery and equipment
Buildings and improvements
Land improvements
Furniture, fixtures and equipment
Transportation equipment
Communication and utility systems
Roads and bridges
Agricultural machinery and equipment
5-10 years
5-15 years
5-15 years
5 years
5 years
5 years
10 years
5-7 years
The useful lives and depreciation and amortization method are reviewed periodically to ensure that
the period and method of depreciation and amortization are consistent with the expected pattern of
economic benefits from items of property, plant and equipment.
Construction in-progress represents properties under construction and is stated at cost. This
includes cost of construction and other direct costs. Construction in-progress is not depreciated
until such time that the relevant assets are completed and put into operational use.
Asset Impairment
The carrying values of property, plant and equipment and other long-lived assets are reviewed for
impairment whenever events or changes in circumstances indicate that the carrying values may not
be recoverable. If any such indication exists and where the carrying values exceed the estimated
recoverable amounts, the assets or cash-generating units are written down to their recoverable
amounts. The recoverable amount of property, plant and equipment and other long-lived assets is
the greater of net selling price or value in use. The net selling price is the amount obtainable from
the sale of an asset in an arm’s-length transaction, less cost to dispose. In assessing value in use,
the estimated future cash flows are discounted to their present value using a pre-tax discount rate
that reflects current market assessment of the time value of money and the risks specific to the
asset. For an asset that does not generate largely independent cash inflows, the recoverable
amount is determined for the cash-generating unit to which the asset belongs. Impairment losses,
if any, are recognized in the statements of income.
Provisions
Provisions, if any, are recognized when the Company has a present obligation (legal or
constructive) as a result of a past event, it is probable that an outflow of resources embodying
economic benefits will be required to settle the obligation and a reliable estimate can be made of
the amount of the obligation. If the effect of the time value of money is material, provisions are
determined by discounting the expected future cash flows at a pre-tax rate that reflects current
market assessment of the time value of money and, where appropriate, the risks specific to the
liability. Where discounting is used, the increase in the provision due to the passage of time is
recognized as interest expense.
Related Party
Parties are considered to be related if one party has the ability to control the other party or exercise
significant influence over the other party in making financial and operating decisions. This
includes: (a) individuals owning, directly or indirectly through one or more intermediaries,
control, or are controlled by, or under common control with, the Company; (b) associates; and
(c) individuals owning, directly or indirectly, an interest in the voting power of the Company that
gives them significant influence over the Company and close members of the family of any such
individual.
Revenue
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Company and the revenue can be reliably measured. The following specific recognition criteria
must also be met before revenue is recognized:
Sales are recognized when title to the goods has passed to the buyer through endorsement of
quedans or physical delivery.
Tolling fee is recognized when services have been rendered.
Interest income is recognized as it accrues.
Contingencies
Contingent liabilities are not recognized in the financial statements. They are disclosed unless the
possibility of an outflow of resources embodying economic benefits is remote. A contingent asset
is not recognized in the financial statements but disclosed when an inflow of economic benefits is
probable.
Income Tax
Deferred income tax is provided, using the balance sheet liability method, on all temporary
differences at the balance sheet date between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes.
Deferred income tax liabilities are recognized for all taxable temporary differences. Deferred
income tax assets are recognized for all deductible temporary differences, carryforward benefits of
unused tax credits from excess minimum corporate income tax (MCIT) and net operating loss
carryover (NOLCO), to the extent that it is probable that taxable profit will be available against
which the deductible temporary differences and carryforward benefits of unused MCIT and
unused NOLCO can be utilized. Deferred income tax, however, is not recognized when it arises
from the initial recognition of an asset or liability in a transaction that is not a business
combination and, at the time of the transaction, affects neither the accounting profit nor taxable
profit or loss.
The carrying amount of deferred income tax assets is reviewed at each balance sheet date and
reduced to the extent that it is no longer probable that sufficient taxable profit will be available to
allow all or part of the deferred income tax asset to be utilized.
Deferred income tax assets are measured at the tax rate that are expected to apply in the period
when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been
enacted or substantively enacted at the balance sheet date.
Operating Leases
Operating lease payments are recognized as expense in the statements of income on a straight-line
basis over the lease term.
Retirement Costs
Retirement costs are actuarially determined using the attained age actuarial cost method. This
method reflects service rendered by employees to the date of valuation and incorporates
assumptions concerning employees’ projected salaries. Retirement costs include current service
cost plus amortization of past service cost, experience adjustments and changes in actuarial
assumptions over the expected average remaining working lives of the covered employees.
Borrowing Costs
Borrowing costs are expensed as incurred.
Earnings (Loss) Per Share
Earnings (loss) per share is computed by dividing net income (loss) by the weighted average
number of shares issued and outstanding after giving retroactive effect to any stock dividends
declared during the year.
Subsequent Events
Post year-end events that provide additional information about the Company’s position at the
balance sheet date (adjusting events), are reflected in the financial statements. Post year-end
events that are not adjusting events are disclosed in the notes to the financial statements when
material.
New Accounting Standards Effective in 2005
New accounting standards based on IAS, referred to as Philippine Accounting Standards (PAS)
will become effective in 2005. The Company will adopt the following PAS that are relevant to the
Company beginning July 1, 2005:
PAS 19, “Employee Benefits,” which will result in the use of the projected unit credit method
in measuring retirement benefit expense and a change in the manner of computing benefit
expense relating to past service cost and actuarial gains and losses. It requires a company to
determine the present value of defined benefit obligations and the fair value of any plan assets
with sufficient regularity that the amounts recognized in the financial statements do not differ
materially from the amounts that would be determined at the balance sheet date. The
Company will avail of the services of a qualified actuary to perform an actuarial valuation of
the Company’s retirement benefit obligations in accordance with PAS 19, and to determine
the amount of transitional liability or asset that will be adjusted against deficit upon adoption
of this standard. As discussed in Note 13, the fair value of the plan assets amounted to
=
P91.0 million and actuarial accrued liability amounted to =
P183.7 million as of January 1,
2002, the Company’s latest actuarial valuation.
PAS 32, “Financial Instruments: Disclosure and Presentation,” covers the disclosure and
presentation of all financial instruments. The standard requires more comprehensive
disclosures about a company’s financial instruments, whether recognized or unrecognized in
the financial statements. New disclosure requirements include terms and conditions of
financial instruments used by the company, types of risks associated with both recognized and
unrecognized financial instruments (price risk, credit risk, liquidity risk, and cash flow risk),
fair value information of both recognized and unrecognized financial assets and financial
liabilities, and the company’s financial risk management policies and objectives. The standard
also requires financial instruments to be classified as liabilities or equity in accordance with its
substance and not its legal form.
PAS 39, “Financial Instruments: Recognition and Measurement,” establishes the accounting
and reporting standards for recognizing, measuring, and disclosing information about a
company’s financial assets and financial liabilities. The standard requires a financial asset or
financial liability to be recognized initially at fair value. Subsequent to initial recognition, the
company should continue to measure financial assets at their fair values, except for loans and
receivables and held-to-maturity investments, which are to be measured at cost or amortized
cost using the effective interest rate method. Financial liabilities are subsequently measured at
cost or amortized cost, except for liabilities classified as “at fair value through profit and loss”
and derivatives, which are subsequently to be measured at fair value.
PAS 39 also covers the accounting for derivative instruments. This standard has expanded the
definition of a derivative instrument to include derivatives (and derivative-like provisions)
embedded in non-derivative contracts. Under the standard, every derivative instrument is
recorded in the balance sheet as either an asset or liability measured at its fair value.
Derivatives that do not qualify as hedges are adjusted to fair value through income. If a
derivative is designated and qualify as a hedge, depending on the nature of the hedging
relationship, changes in the fair value of the derivative are either offset against the changes in
fair value of the hedged assets, liabilities, and firm commitments through earnings, or
recognized in stockholders’ equity until the hedged item is recognized in earnings. A
company must formally document, designate and assess the hedge effectiveness of derivative
transactions that receive hedge accounting treatment.
The impact on the financial statements of the adoption of PAS 32 and 39 is not presently
quantifiable. Certain detailed activities shall be undertaken, which include, among others, the
following:
1.
Review of contracts for the purpose of identifying and, where required, bifurcating
derivatives that are embedded in both financial and non-financial contracts.
2.
Development of a financial instruments policy that will cover accounting for financial
instruments, to include the preparation of hedge accounting guidelines and requirements
for derivatives that are designated and qualify as hedges.
3.
Evaluation of the proper classification of financial instruments, including determining
whether a financial instrument should be accounted for as debt or equity; and,
4.
Assessment of required process and systems changes.
In 2006, the impact of adopting PAS 32 and 39 will be retroactively computed, as applicable,
and adjusted to the July 1, 2005 retained earnings. Prior year’s financial statements will not
be restated as allowed by the Securities and Exchange Commission (SEC).
PAS 40, “Investment Property,” prescribes the accounting treatment for investment property
and related disclosure requirements. This standard permits the company to choose either the
fair value model or cost model in accounting for investment property. Fair value model
requires an investment property to be measured at fair value with fair value changes
recognized directly in the statements of income. Cost model requires that an investment
property should be measured at depreciated cost less any accumulated impairment losses.
Upon effectivity of PAS 40, the Company will adopt the cost model and will continue to carry
its investment property at depreciated cost less any accumulated impairment losses.
The Company will also adopt the following standards based on revised IAS:
PAS 1, “Presentation of Financial Statements,” provides a framework within which an entity
assesses how to present fairly the effects of transactions and other events; provides the base
criteria for classifying liabilities as current or noncurrent; prohibits the presentation of income
from operating activities and extraordinary items as separate line items in statement of
income; and specifies the disclosures about key sources of estimation, uncertainty and
judgments management has made in the process of applying the entity’s accounting policies.
PAS 2, “Inventories,” reduces the alternatives for measurement of inventories. It does not
permit the use of the last in, first out (LIFO) formula to measure the cost of inventories.
PAS 8, “Accounting Policies, Changes in Accounting Estimates and Errors,” removes the
concept of fundamental error and the allowed alternative to retrospective application of
voluntary changes in accounting policies and retrospective restatement to correct prior period
errors. It defines material omission or misstatements, and describes how to apply the concept
of materiality when applying accounting policies and correcting error.
PAS 10, “Events After the Balance Sheet Date,” provides a limited clarification of the
accounting for dividends declared after the balance sheet date.
PAS 16, “Property, Plant and Equipment,” provides additional guidance and clarification on
recognition and measurement of items of property, plant and equipment. It also provides that
each part of an item of property, plant and equipment with a cost that is significant in relation
to the total cost of the item shall be depreciated separately.
PAS 17, “Leases,” provides a limited revision to clarify the classification of a lease of land
and buildings and prohibits expensing of initial direct costs in the financial statements of the
lessors.
PAS 24, “Related Party Disclosures,” provides additional guidance and clarity in the scope of
the standard, the definitions and disclosures for related parties. It also requires disclosure of
the compensation of key management personnel by benefit type.
Except for PAS 1, PAS 16, PAS 32 and PAS 39 adoption of the revised standards will not
materially impact the Company’s financial position and results of operations.
3. Receivables
This account consists of:
Trade (see Note 14)
Planters’ receivables (see Note 14)
Others (see Note 14)
Less allowance for doubtful accounts (see Note 14)
2005
P
=28,899,576
957,648,460
33,853,229
1,020,401,265
8,400,965
P
=1,012,000,300
2004
=
P25,614,680
910,923,229
48,567,423
985,105,332
2,276,016
=
P982,829,316
2005
2004
P
=12,262,152
–
–
6,288,387
=
P4,173,439
7,837,900
1,055,910
703,360
4. Inventories
This account consists of:
At cost:
Alcohol
Raw sugar (see Note 8)
Yeast and carbon dioxide
Spare parts in transit
At net realizable value:
Spare parts and supplies
34,324,607
33,954,714
P
=52,875,146
=
P47,725,323
The cost of spare parts and supplies amounted to =
P35.4 million and =
P35.0 million as of June 30,
2005 and 2004, respectively.
5. Investments in Shares of Stock
This account consists of:
2004
2005
Proprietary shares (see Note 8):
Luisita Golf and Country Club, Inc. (LGCCI)
Others
Quoted in the stock exchange
Not quoted in the stock exchange:
CAT Realty Corporation
Others
= 25,208,825
P
P
= 25,208,825
942,500
308,093
942,500
308,093
334,652
1,019,820
P
=27,813,890
334,652
1,039,820
=
P27,833,890
Investment in propriety shares with a carrying value of =
P20,000 was sold in 2005.
The estimated aggregate market value of the investments in shares of stock exceeds cost by
=
P204.3 million as of June 30, 2005.
6. Property, Plant and Equipment
This account consists of:
Balance
at Beginning
of Year
Cost:
Machinery and equipment
Buildings and improvements
Land and improvements
Furniture, fixtures and equipment
=
P1,036,079,438
72,390,948
68,398,944
63,571,531
Disposals/
Write-offs/
Additions Reclassifications
=
P–
–
–
271,044
Balance
at End
of Year
=
P– P
=1,036,079,438
–
72,390,948
60,103
68,459,047
120,709
63,963,284
Balance
at Beginning
of Year
Transportation equipment
26,131,674
Communication and utility systems
17,169,696
Roads and bridges
12,350,552
Agricultural machinery and equipment
850,840
1,296,943,623
Less accumulated depreciation
and amortization:
Machinery and equipment
786,654,082
Buildings and improvements
49,277,738
Land improvements
34,613,092
Furniture, fixtures and equipment
58,691,179
Transportation equipment
22,531,440
Communication and utility systems
15,729,905
Roads and bridges
7,966,171
Agricultural machinery and equipment
849,709
976,313,316
320,630,307
Construction in-progress
21,086,371
=
P341,716,678
Additions
–
–
–
–
271,044
Disposals/
Write-offs/
Reclassifications
(1,264,545)
–
–
–
(1,083,733)
Balance
at End
of Year
24,867,129
17,169,696
12,350,552
850,840
1,296,130,934
72,848,083
3,947,617
1,143,172
2,484,354
1,189,388
521,604
829,062
–
82,963,280
–
–
–
–
(1,264,543)
–
–
–
(1,264,543)
4,526,039
(23,159,501)
859,502,165
53,225,355
35,756,264
61,175,533
22,456,285
16,251,509
8,795,233
849,709
1,058,012,053
238,118,881
2,452,909
P
=240,571,790
Appropriation of retained earnings pursuant to the Company’s plant expansion and modernization
program was reversed in 2005 against deficit.
Certain property, plant and equipment are covered with indentures (see Note 8).
7. Other Noncurrent Assets
This account consists of:
Land not used in operations (at cost)
Advances to directors, officers and employees - net
of allowance for doubtful accounts of =
P959,036
in 2005 and 2004 (see Note 14)
Prepaid taxes
Refundable deposits
Others
2005
P
=14,986,709
2004
=
P14,986,709
9,908,224
7,319,099
2,439,910
1,223,780
P
=35,877,722
11,055,743
6,668,382
3,024,599
1,315,398
=
P37,050,831
2005
P
=952,114,826
15,000,000
967,114,826
791,022,402
P
=176,092,424
2004
=
P954,000,000
15,000,000
969,000,000
840,500,000
=
P128,500,000
8. Notes Payable
This account consists of borrowings from:
Local banks
Related parties (see Note 14)
Less current portion
Notes payable from local banks consist of collateralized loans covered by deeds of
assignments on a portion of the proceeds of the Company’s share in sugar production, certificates of
proprietary shares of stock with carrying book value of =
P25.2 million in 2005 and 2004 (see Note 5)
and mortgage participation certificates under a Mortgage Trust Indenture trusteed by a local bank with
interest rates ranging from 13.0% to 19.3% in 2005 and 7.6% to 13.0% in 2004. This indenture covers
certain property, plant and equipment with carrying value of =
P237.2 million and
=
P319.3 million as of June 30, 2005 and 2004, respectively. Based on the latest appraisal of the
properties made by an independent appraiser in 2003, these properties have an appraised value of =
P2.3
billion.
The agreements covering the notes payable aggregating =
P128.5 million in 2005 require maintenance of
certain financial ratios, and also provide, among others, certain negative covenants requiring prior
written bank approval for specified corporate acts such as the declaration of cash or property
dividends, granting of additional loans or advances and investments, merger or consolidation, sale of
assets, amendment of articles of incorporation and by-laws, entering into any new management
contracts and mortgage of properties of the Company and certain related parties (see Note 14). The
Company was not able to meet certain requirements under the loan agreements including repayment
schedules
for
principal
and
interest.
Certain
bank
loans
aggregating
=
P100.0 million due in March 2005 were extended until December 2005.
The Company sought for the restructuring of its maturing bank loans aggregating =
P776.6 million.
There are on-going negotiations for the conversion of these short-term loans including accrued interest
to certain banks into long-term facilities with tenors of ranging up to five years. Maturing portion of
the loans that were converted to term loans amounted to =
P50.0 million in 2005 and
=
P126.5 million in 2004.
Scheduled payments of the long-term loans from creditor banks amounting to =
P176.1 million and from
a related party amounting to =
P10.0 million are as follows:
Year
Amount
Creditor banks:
2006
=
P23,555,597
2007
33,043,848
2008
34,057,024
2009
30,260,955
2010
22,495,000
2011
22,680,000
Related party:
2006
10,000,000
Notes payable to related parties (see Note 14) are exempt commercial papers registered with the SEC
with interest rates ranging from 8% to 10%.
9. Trade and Other Payables
This account consists of:
Trade payables (see Note 14)
Customers’ advances (see Notes 14 and 16)
Interest and other accrued expenses (see Note 14)
Liens payable
Output VAT
Other payables
2005
P
=128,937,374
330,382,261
82,731,015
3,484,073
–
41,554,147
P
=587,088,870
2004
=
P101,419,257
20,312,583
21,967,812
18,131,243
44,560,492
49,747,992
=
P256,139,379
10. Cost of Goods Sold
This account consists of:
Salaries, wages, bonuses and other benefits
Depreciation and amortization
Machine shop, powerhouse and service
department costs
Change in inventory costs, spare parts,
and supplies (see Note 14)
Security and outside services
Retirement cost (see Note 13)
Freight and transportation
2005
P
=107,934,632
54,214,781
2004
=
P146,286,360
85,481,508
2003
=
P147,593,264
83,528,894
40,605,075
48,531,976
65,024,572
22,058,176
18,023,829
13,880,510
8,420,420
89,759,461
29,986,640
13,880,509
35,907,904
46,564,729
26,373,077
13,880,509
34,509,419
2005
P
=7,545,697
2,555,899
927,343
920,201
8,158,754
P
=285,245,317
2004
=
P54,907,416
273,991,561
4,747,861
12,724,275
28,727,610
=
P824,933,081
2003
=
P52,889,719
–
5,407,204
8,182,780
19,404,873
=
P503,359,040
(Forward)
Repairs and maintenance
Purchases (see Note 14)
Taxes and licenses
Commission (see Note 14)
Others (see Note 14)
11. Cost of Tolling Services
This account consists of:
Salaries, wages, bonuses and other benefits
Machine shop, powerhouse and service
department costs
Spare parts and supplies
Retirement cost (see Note 13)
Repairs and maintenance
Depreciation and amortization
Taxes and licenses
Commission (see Note 14)
Freight and transportation
Others
2005
P
=19,757,547
2004
=
P29,430,507
2003
=
P24,338,581
12,298,794
5,290,336
2,269,090
2,165,849
2,161,504
322,847
585,618
–
1,444,416
P
=46,296,001
44,963,503
26,010,890
2,269,091
9,757,060
3,727,130
1,349,061
2,946,017
2,993,347
2,195,032
=
P125,641,638
23,694,076
27,072,165
2,269,091
9,382,399
3,843,366
1,887,918
2,283,395
3,030,134
2,824,801
=
P100,625,926
2005
P
=39,227,675
16,572,060
10,880,787
10,487,758
9,031,598
7,615,279
7,254,167
2004
=
P39,093,737
15,047,458
10,238,184
12,574,677
10,837,917
5,090,618
7,242,833
2003
=
P42,906,141
11,053,327
10,190,544
12,496,974
10,837,917
3,615,715
7,126,615
6,775,200
6,124,949
5,465,771
5,347,411
9,177,299
2,276,016
8,386,334
3,638,293
6,775,200
1,894,777
6,098,252
4,073,418
12. Operating Expenses
This account consists of:
Salaries, wages and other benefits
Transportation and travel
Dues and advertisements
Professional fees
Rentals (see Note 14)
Light and water
Security and janitorial services
Management fees and bonuses
(see Note 14)
Provision for doubtful accounts
Postage, telephone and telegram
Taxes and licenses
(Forward)
Retirement cost (see Note 13)
Repairs and maintenance
Depreciation and amortization
Entertainment, amusement and recreation
Provision for inventory obsolescence
Others
2005
P
=3,209,100
2,765,752
2,672,925
726,022
–
3,676,952
P
=137,833,406
2004
=
P3,209,100
3,251,892
6,560,490
7,800,117
1,054,656
6,931,304
=
P152,410,925
2003
=
P3,209,100
2,994,226
7,173,519
5,162,998
–
3,288,578
=
P138,897,301
13. Retirement Plan
The Company has a noncontributory retirement plan covering substantially all of its permanent
employees. Retirement costs charged to operations amounted to =
P19.4 million in 2005, 2004 and
2003.
Based on the latest actuarial valuation as of January 1, 2002, fair value of the plan assets
amounted to =
P91.0 million and actuarial accrued liability amounted to =
P183.7 million.
The unfunded actuarial liability amounted to P
=92.7 million. The principal actuarial
assumptions used to determine retirement benefits include an interest rate and annual
salary increase of 8%. Actuarial valuations are made at least once every three years. The
Company’s annual contribution to the retirement fund consists of a payment covering the
current service cost for the year plus a payment toward funding the actuarial accrued
liability.
14. Related Party Transactions
Significant transactions with related parties include the following:
a. Commission expenses of =
P1.5 million in 2005, =
P15.7 million in 2004, and =
P10.5 million in
2003 related to marketing agreements with Tarlac Distillery Corporation (TADISCO) and
Luisita Marketing Corporation (LMC).
b. Management fees of =
P6.8 million in 2005, =
P9.2 million in 2004, and =
P6.8 million in 2003
pursuant to a management agreement with Jose Cojuangco and Sons, Inc. (JCSI). Sugar
supply arrangement assumed from JCSI aggregated =
P687.0 million in 2004.
c. Office rentals of =
P9.0 million in 2005 and =
P10.8 million in 2004 and 2003 for the lease of
office space from J.C. Enterprises, Inc. (JCE).
d. Purchases of molasses of =
P2.1 million in 2005, =
P18.1 million in 2004, and =
P20.2 million in
2003 from Hacienda Luisita, Inc. (HLI) at prevailing market price.
Extensions of advances to HLI, its major planter, for working capital requirements.
Assignment of the Company’s trading arrangements with a customer to HLI for the supply of
raw sugar aggregating =
P86.4 million in 2005. The said amount was applied against the
Company’s receivable account from HLI.
e. Purchases of raw sugar of =
P2.6 million from other affiliated planters in 2005 at prevailing
market price (see Note 10).
Sharing of sugar and molasses produced every crop year at 67.0% and 33.0% between HLI
and the Company pursuant to a milling agreement (see Note 16).
f.
Intercompany advances and reimbursements of expenses. Due from related parties represents
mainly advances from the Company. Interest is generally computed on the monthly
outstanding balance at prevailing rates. Intercompany advances, except for Luisita Realty
Corporation (LRC), ceased to be interest bearing starting 2004.
g. Certain properties of the Company’s related parties are held as collateral to the Company’s
loans.
Outstanding balances of receivables and payables resulting from related party transactions shown
in the balance sheets are summarized below:
2004
2005
Due from related parties:
LRC
Tarlac Development Corporation (TDC)
Linis Abe Corporation
JCE
JCSI
LGCCI
= 246,907,558
P
33,411,389
388,379
104,957
–
–
P
=280,812,283
Due to related parties:
CAT Realty Corporation
JCSI
LGCCI
LMC
= 30,200,584
P
26,603,247
2,903,279
Trade receivables from (see Note 3):
TADISCO
LMC
P
= 19,922,237
–
P
=59,707,110
Planters’ receivables - HLI (see Note 3)
Advances to directors, officers and employees - net
(see Note 7)
Accrued management fees - JCSI (see Note 3)
Notes payable to (see Note 8):
Luisita Trust Fund
J. C. Enterprise
83,339,821
575,095
113,949
70,467,356
8,611,524
=
P389,390,004
P
= 22,053,396
–
–
496,933
=
P22,550,329
P
= 10,515,312
–
6,027,938
25,950,175
Allowance for doubtful accounts
P
= 226,282,259
10,515,312
6,027,938
P
=19,922,237
P
=953,809,465
–
=
P10,515,312
=
P899,140,878
P
=9,908,224
P
=–
=
P11,055,743
=
P581,007
P
=10,000,000
5,000,000
P
=15,000,000
=
P10,000,000
5,000,000
=
P15,000,000
HLI experienced a prolonged labor strike and temporarily ceased its operations. The labor strike
was settled only in December 2005. Correspondingly, it is in a tight liquidity position.
Moreover, the Presidential Agrarian Reform Council (PARC) issued a resolution calling for the
revocation of HLI’s Stock Distribution Option (SDO) with its farmworkers. Subsequently, on
January 4, 2006, the Office of the PARC issued notices of coverage (NOC) covering HLI’s
landholdings. HLI has filed a motion for reconsideration on the resolution. Management and its
legal counsel strongly believe that the PARC lacks jurisdiction in promulgating the resolution and
that the NOC issued is without legal basis.
The Company and HLI are currently discussing the settlement of the Company’s receivable. The
Company’s management believes that HLI on its own, and its major shareholders, have adequate
resources to fully settle the Company’s receivable. No allowance for any loss on this receivable
has been recognized in the accounts.
In 2005, JCSI assumed the liabilities of HLI and TDC to the Company amounting to =
P68.9 million
and =
P130.5 million, respectively.
In 2005, receivables from certain shareholders and employees recorded as part of other receivables
in 2004 aggregating =
P32.9 million were assumed by TDC.
The Company and the foregoing related parties, except directors and officers, have common
stockholders.
15. Income Taxes
The components of the Company’s deferred tax assets are as follows:
2005
Deferred tax assets:
Unamortized portion of past service costs
Allowance for doubtful accounts
Allowance for inventory obsolescence
Less deferred tax liability - unamortized portion
of taxes and duties
2004
=
P10,252,494
P
=9,270,198
1,035,216
3,276,000
337,490
369,130
11,625,200
12,915,328
–
P
=12,915,328
1,360,831
=
P10,264,369
Deferred tax asset related to NOLCO amounting to P
=157.3 million in 2005 was not
recognized in the books because the Company is not expecting that future taxable profits will
be sufficient to avail the benefits of deferred tax assets.
The carryforward benefit of NOLCO amounting to =
P449.1 million which can be
claimed as tax deduction against the taxable income will expire in 2008. In 2004, the
carryforward benefits of the excess of MCIT over RCIT amounting to =
P0.6 million was
applied against RCIT due.
The reconciliation of income tax on income before income tax computed at the
statutory tax rate to provision for income tax as shown in the statements of income is
summarized as follows:
Income tax computed at statutory tax rate
Change in:
Unrecognized deferred tax assets
Income tax rate
Income tax effects of:
Losses from non-operating due
to labor strike
Gain on sale of investment in shares
of stock already subjected
to capital gains tax
Interest income already subjected
to final tax
Unallowable portion of interest expense
Others
2005
(P
=176,956,600)
2004
=
P5,815,048
2003
=
P5,524,809
157,332,379
(14,592,661)
–
–
–
–
35,994,024
–
–
(3,865,230)
–
–
(1,069,867)
508,187
(1,191)
(P
=2,650,959)
(2,210,078)
1,049,787
79,368
=
P4,734,125
(208,065)
98,831
196,206
=
P5,611,781
16. Agreements
Milling Agreements
The Company’s milling agreements with various planters provide for a 67.0% and
33.0% sharing between the planters (including related parties) and the Company, respectively,
of sugar and molasses produced every crop year. As a consequence of the milling agreements
and tolling contracts (for refined sugar) with planters and traders, the Company holds the
sugar stock of the planters and traders for safekeeping. The Company still has sugar for
safekeeping on hand which could not be withdrawn as a result of the labor problem discussed
in Note 1.
Supply Agreement
The Company has entered into a supply agreement with a customer for the delivery of
refined sugar with an aggregate value of =P375.0 million in 2005. Customer’s advances relative
to this agreement amounted to P=300.0 million as of June 30, 2005. Because of the on-going
labor problem, the Company failed to process the sugar requirements and comply with the
scheduled delivery date under the agreement. The outstanding supply agreement, on which
the delivery schedules were extended, is collateralized by real estate mortgage by certain
shareholders.
Lease Agreement
The Company has lease agreement with JCE (see Note 14), renewal of which is in the
process as of to date.
17. Earnings (Loss) Per Share
The Company’s earnings (loss) per share for the years ended June 30, 2005, 2004, and
2003, are computed as follows:
2005
(P
=
550,338,415)
Net income (loss) (a)
2004
=
P
13,437,899
2003
=
P
11,653,247
28,254,5
96
720
28,253,8
76
28,254,5
96
720
28,253,8
76
=
P0.48
=
P0.41
Weighted average number of shares
(b):
Outstanding
and
issued
shares
Less treasury shares
Earnings (loss) per share (a/b)
28,254,5
96
720
28,253,8
76
(P
=19.48)